Can an Auditing Firm Be Involved in Corruption and Its Implications
The relationship between auditing firms and corruption is a complex and often disturbing one. This article explores the historical context, the Enron scandal, and the broader implications of such involvement, particularly in the context of the neoliberal capitalist system.
The Enron Scandal and Arthur Andersen
The case of Arthur Andersen is a prime example of how an auditing firm can be entangled in corruption. As detailed in the book "Inside Arthur Andersen: Shifting Values, Unexpected Consequences", the firm played a significant role in the Enron scandal. The Enron corporation, once a high-flying energy company, collapsed due to massive financial fraud. Arthur Andersen was complicit because it failed to question the questionable financial practices of Enron, a mistake that ultimately led to the firm's downfall.
Implications of Lack of Due Diligence
Even firms that do not engage in direct corruption can still be implicated if they fail to carry out their responsibilities diligently. This is evident in the case of Arthur Andersen, which was disbanded after the Enron scandal. Such incidents highlight how a lack of due diligence can have severe consequences for an auditing firm's reputation and future.
Other Examples of Auditing Firm Involvement in Corruption
Corruption in auditing firms is unfortunately not isolated to the Arthur Andersen and Enron scandal. A notable example is the Friehling Horowitz firm, which was involved in the infamous Bernard Madoff Ponzi scheme. These cases underscore the need for stricter regulations and ethical standards in the auditing industry to prevent such malpractices.
The Role of Neoliberal Capitalism and Austerity Measures
The neoliberal capitalist system often facilitates and enables such corrupt practices. The 2008 subprime mortgage crisis, orchestrated by some of the largest financial institutions in the United States, exemplifies this. The auditors and accountants, often cheerleaders for such corrupt practices, stood by and facilitated these actions, albeit with avaricious disregard for the consequences.
The subprime mortgage fiasco was strategically designed to increase the profits of financial institutions at the cost of hundreds of thousands of innocent people's lives. The auditors and accountants actively participated in these actions, essentially turning a blind eye to ethical and moral considerations.
Following the crisis, governments across the globe implemented austerity measures, ostensibly to reduce government spending and public debt. However, these measures often disproportionately affected the economically and culturally deprived sectors. Austerity measures, designed to appeal to wealthy creditors, aimed to stabilize economies through lower inflation and higher probabilities of debt repayment.
These measures create a cycle of fear among workers, fostering a passive and uncomplaining workforce. This, in turn, benefits the corporate sector by weakening the bargaining power of workers and reducing the potential for disturbances or demonstrations.
Conclusion
The involvement of auditing firms in corruption is a multifaceted issue with deep roots in the broader socio-economic system. The Enron scandal and other incidents highlight the critical importance of stringent ethical standards, regulatory oversight, and a more equitable economic system to prevent such malpractices.
The corruption in auditing, auditing firm involvement, Enron scandal, neoliberal capitalism, and austerity measures discussed in this article serve as stark reminders of the need for vigilance and reform in the auditing industry and beyond.